Child benefit cut still mired in confusion

George Osborne's plan to cut child benefit is still mired in confusion just
eleven weeks before it starts, with tax experts warning the Government that
they have left it too late to implement the reform in time.

HMRC is preparing to send letters to all high-earning taxpayers it thinks will be affected by the change, which will see child benefit cut in families where one parent earns over £50,000. Families where a parent earns over £60,000 will lose the money completely.

However the Institute of Chartered Accountants in England and Wales (ICAEW) warned last night that time is running out before the January 7 implementation of the cut.

It said that most middle-class families remain oblivious to the changes, which will require an estimated 500,000 people to fill out complicated self-assessment tax returns for the first time.

Anita Monteith, technical manager at the ICAEW’s Tax Faculty, said that the “ill-judged” policy will over-burden a tax system that is already “creaking at the seams”.

She said that “most people” do not know anything about the changes and said that the potential for confusion is “very high”.

The cut in child benefit is being implemented by the Chancellor to reduce the Government’s benefit bill. Currently 7.8 million families are given the cash, which amounts to £20.30 a week for first child and £13.40 for others.

More than a million families will be affected by the policy.

Ms Monteith said that that the system could end in chaos because HMRC plans to ‘claw back’ the money via people’s tax returns, rather than simply pay them less.

The move will require half a million people to fill out returns for the first time, although families can avoid self-assessment if they give up child benefit entirely, Ms Monteith said.

People remain unaware of the policy, the ICAEW argues.

“Most people don’t know anything about it. January 7 is not far away,” said Ms Monteith.

She said that the tax system is already “creaking at the seams” and staff numbers at HMRC are down due to departmental cutbacks from central Government.

“HMRC staff numbers have gone down from 96,000 to 66,000, and trying to get through on the telephone is a very lengthy process now. I don’t think it is the right time to bung in a whole bunch of people who have never had to engage with self-assessment before, and be lumbering them with a tax charge that is not intuitive,” she said.

One possible complication is that HMRC will write to householders who earn over £50,000. However these are not necessarily the people to whom HMRC pays the money on a weekly basis. This could mean that breadwinners will be alerted to the changes but the people who carry out childcare duties might not be.

The ICAEW has written to MPs urging them to make people aware of the changes.

“Quite frankly if you have got 3 children under 5 or something and your husband is out working every hour, quite possible you don’t read the financial pages,” said Ms Monteith.

A spokesman for HMRC said: “We will be writing to all taxpayers potentially affected by the changes later in the Autumn, when HMRC will set out what people need to do and the options they have.”

A Treasury spokesman defended the cut to child benefits.

“It is unfair to continue paying child benefit to those on high incomes, and we are making the system fairer by introducing the changes,” the spokesman said.